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ENTREVESTOR: Innovacorp to accelerate investments during crisis – TheChronicleHerald.ca

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Innovacorp is accelerating its investment plans in light of COVID-19, not just to boost the economy but because it sees an opportunity to make money, said managing director Andrew Ray.

In an interview, Ray said the venture capital agency, whose lone backer is the Nova Scotia government, believes investments made during economic downturns tend to produce strong returns in the long run.

What’s more, he said the participation of governments in VC funding in Atlantic Canada means the stronger companies in the region will survive while their competitors in other regions may fail, so Atlantic Canadian startups may emerge from the crisis stronger and with less competition.

“We think investing through the crisis will provide a return to us, but we also think it will be good for our companies,” said Ray, who took over the investment team in 2018.

“They will be able to beat out the competition.”

Overall, Ray said, 10 to 20 per cent of Innovacorp’s 39-company portfolio is benefitting from the crisis, and the same proportion is suffering sharp pain. A band of about 70 per cent in the middle look set to endure the pandemic and emerge into the recovery.

Innovacorp is working on emergency investment rounds for three of the 39 companies in its portfolio. These companies were performing well before the crisis hit, and two were on the cusp of raising capital.

The agency is focused on helping its existing companies but expects to make equity investments in new ventures. Ray anticipated Innovacorp would make 12 to 15 investments this year, about half in new companies.

In most places around the world, venture capital firms are backed by limited partners from the private sector, mainly pension funds or wealthy individuals. Most of these private partners are suffering losses in stock market investments and other asset classes, so they’re telling VC funds to show restraint and not make new investments, said Ray.

In most markets after March, total VC investment will fall by half and valuations will fall by 25 per cent, said Ray.

“Twenty-five per cent fewer startups will get funded and some aren’t going to make it.”

However, he added that Atlantic Canadian VC funds are backed by government. Even the private fund managers like Build Ventures, Concrete Ventures and Pelorus Venture Capital receive much of their funding from government, and governments want the VC funds to invest right now.

Atlantic Canadian startups tend to be “lean and scrappy,” Ray said, as there is usually less VC capital in the region than other areas. With some support from government-backed funds, they are well positioned to emerge from the crisis.

Innovacorp has the ability to make investments of as much as $2 million, though it rarely reaches that level. On top of that, BDC Capital is working on a program in which it will match VC investments, as outlined by Betakit this month. Ray said this all means many Atlantic Canadian companies will be able to tap equity capital to help them endure the downturn, or to grow if their business models benefit from the situation.

“In Atlantic Canada, I think we’re much more resilient (than other jurisdictions) in the startup space,” said Ray.

“If you make it through this crisis, you will be better off.”

Disclosure: Innovacorp is a client of Entrevestor.

Peter Moreira is a principal of Entrevestor, which provides news and data on Atlantic Canadian startups.

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'Should we invest our 2020 TFSA now, or wait a few months?' – The Globe and Mail

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Here’s how I handle my TFSA contributions – I divide the total amount for the year, currently $6,000, by 26 and then have that amount electronically transferred when I get paid every two weeks into a TFSA investment account.

A reader recently asked about TFSA contribution strategies for this year: “We have yet to invest in our TFSA for 2020. Should we go ahead and invest now, or should we wait for another few months when the economy will hopefully begin to pick up again?”

I have no idea at the best of times about when the best time to invest is. Now, I’m more baffled than ever. The economy has been damaged and prospects for a comprehensive reopening seem uncertain at best, given the differing medical outlooks across the provinces. Will companies bring back all the workers they laid off? How many businesses won’t reopen? How much will economic activity be down overall six to 12 months from now? What about all the debt deferrals people arranged – what happens when they have to resume their usual payments?

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Our world today is so much different than it was in early February, before pandemic fears hammered the stock markets. And yet, the U.S. stock market has charged back to the point where it was off only about 10 per cent in late May from its 52-week high and well above its level of May 2019.

I don’t get it, and I won’t fight it. My biweekly TFSA contributions continue, just as they did when the markets plunged in March.

As to that reader question, I can only suggest the gradual approach to TFSA investing. Academic studies have shown that lump-sum investments outperform the gradual approach, known as dollar-cost averaging. But this year is off the charts – why guess what’s going to happen?

Subscribe to Carrick on Money

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Rob’s personal finance reading list…

Never refrigerate bread

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Tips from Consumer Reports on how to extend food expiration dates. Cut waste, and visit the supermarket less. By the way, coffee shouldn’t go in the fridge, either. Flour should, though.

Inflation: How big a problem will it be?

A lot of readers have told me lately they worry about inflation being ignited by all the money the government is pumping into the economy to offset the effects of the pandemic. This guide to inflation, deflation and disinflation should set minds at ease, at least until the good times resume.

How to avoid retirement myopia

Way too much retirement advice is tossed out in a general way, even if the needs and priorities of each generation are different. Here’s a different take – retirement guidance for people 25 to 40, 41 to 55 and 56+.

Make your own Starbucks drinks at home

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A personal finance blog shares some cheap and cheerful versions of tea, lemonade and coffee drinks.

Ask Rob

Q: Why you haven’t recommended five-year GICs as a possible safe vehicle for a portion of retiree funds? I have $50,000 in one earning 3.25 per cent, a higher rate than one- or two-year GICs or a savings account. It’s true I purchased when GIC rates were higher, but the principle remains the same.

A: I have written a lot over the years about how GICs make a good substitute for bonds or bond funds in diversified portfolio – they’re not as liquid as bonds in that there are stiff fees if you sell early, but they don’t jump around in price like bonds can. GIC rates are also quite competitive with bonds. The best rate on a five-year guaranteed investment certificate in late May was 2.3 to 2.4 per cent, while the yield on the five-year Government of Canada bond was just 0.4 per cent.

Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

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How to report wrongdoing by an investment adviser.

Tweet of the week

Evan Siddall, president and CEO of Canada Mortgage and Housing Corp., takes on those who insist real estate prices can keep going up despite the economic damage caused by the pandemic.

In case you missed these Globe and Mail personal finance-related stories

More Carrick and money coverage For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group. Send us an e-mail to let us know what you think of my newsletter. Want to subscribe? Click here to sign up.

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Just How Good An Investment Is Renewable Energy? New Study Reveals All – Forbes

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Renewable energy investments are delivering massively better returns than fossil fuels in the U.S., the U.K. and Europe, but despite this the total volume of investment is still nowhere near that required to mitigate climate change.  

Those are some of the findings of new research released today by Imperial College London and the International Energy Agency, which analyzed stock market data to determine the rate of return on energy investments over a five- and 10-year period.

The study found renewables investments in Germany and France yielded returns of 178.2% over a five year period, compared with -20.7% for fossil fuel investments. In the U.K., also over five years, investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels. In the U.S., renewables yielded 200.3% returns versus 97.2% for fossil fuels.

Green energy stocks were also less volatile across the board than fossil fuels, with such portfolios holding up well during the turmoil caused by the pandemic, while oil and gas collapsed. Yet in the U.S., which provided the largest data set, the average market cap in the green energy portfolio analyzed came to less than a quarter of the average market cap for the fossil fuel portfolio—$9.89 billion for the hydrocarbons versus $2.42 billion for renewables.

Speaking to Forbes.com, Charles Donovan, director of the Centre for Climate Finance and Investment at Imperial College and the report’s lead author, said: “The conventional wisdom says that investing in fossil fuels is more profitable than investing in renewable power. The conventional wisdom is wrong.”

In spite of the chaos seen in the fossil fuel markets in recent years and months, Donovan said that many investors were finding it hard to let go of hydrocarbons. “Many investors are sleepwalking through a technological disruption of the energy industry, preferring to believe in a fairyland where upstream oil and gas projects earn big risk-adjusted returns,” Donovan warned. “Those days are gone.”

Donovan also warned that, despite the impressive returns from renewables, such figures had “not triggered anywhere near the level of investment required” to decarbonize the economy and mitigate climate change. 

This was a point addressed yesterday in a separate report from the IEA, which showed total global investment in energy down 20%⁠—almost $400 billion⁠—compared with last year, largely as a result of the coronavirus crisis. The IEA characterized the drop as “staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions.”

The IEA laid the blame for the collapse on lower demand for energy, lower prices and a rise in non-payment of bills⁠, which were side effects of the pandemic. 

“The crisis has brought lower emissions but for all the wrong reasons,” said Fatih Birol, IEA’s executive director. “If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment.”

MORE FROM FORBESWhy ‘Irresponsible’ Governments Are Failing To Protect Citizens From Covid-19, Climate Change

Indeed, even before the coronavirus, global investment in green energy was falling well short of that necessary to hit the Paris Agreement target of limiting global warming to within 2 degrees Celsius by 2100. In order to achieve that, countries will need to at least double their annual investment in renewables compared to current levels, from around $310 billion to more than $660 billion, according to the International Renewable Energy Agency.

In answer to why investment in renewables remains relatively low despite apparently stellar returns, the Imperial College report noted that large asset managers and institutional investors such as pension funds required deeper liquidity than the renewables market currently held. “It is easier to allocate a meaningful percentage of their assets under management to renewables if the market is deep and liquid,” the report stated. “Currently, that is not the case.”

The authors attributed much of the uncertainty around renewables to the market being relatively young. “It is not surprising that many investors still consider the renewable power sector as a nascent area,” they wrote. “There are too few pure-play companies, too little information about those companies, and relatively short trading histories. While there is a body of literature developing on the specific investment risk factors associated with renewable energy, the body of empirical evidence remains limited.”

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Spain and Italy are European renewables investment hot spots, says CEO, and Mexico really should be too – pv magazine International

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The zero-subsidy segment of the Spanish and Italian solar markets has hoisted them near the top of the list of most attractive PV locations for a privately-owned renewables investment company which recently launched in London.

Susgen will manage the renewables assets of the real estate and clean energy-focused PP Asset Management vehicle owned by Philip Pels, which has already developed more than 1 GW of renewable energy generation capacity.

The new investment company, which will focus solely on clean energy, is on the hunt for opportunities to further fund the development of big renewable energy portfolios as it bids to expand its more-than-10 GW development pipeline to 30 GW within three years.

Subsidy-free

And with Europe currently the focus for a company which has developed and sold projects in Ireland, the U.K. and the U.S., Susgen chief executive Mark Jones said Spain and Italy are very much markets of interest.

“We’re very encouraged by the opportunity in Spain and Italy, which we consider zero-subsidy markets,” Jones told pv magazine. “We’re not actively seeking policy support in those markets, the opportunity is there to develop large projects and pipelines.”

Jones said Susgen was also keeping a close eye on France, to see how its public auction process would drive clean energy deployment, but said the first-mover opportunities offered in many solar markets did not apply in Germany. “Germany doesn’t quite lend itself to our business model of early-stage development pipelines,” said the CEO, “we see it as a relatively congested market.”

Mexican promise

Jones was keen to emphasize Susgen could look further afield as well, having invested in solar in the U.S., but mentioned the example of Mexico, where rich solar promise is being hampered by local policy.

“Mexico really should be a phenomenal solar market, with the incredible solar resource there,” said Jones. “But from reading the press, there are clearly issues with the monopolistic nature of the utility market, which means it would be a difficult market for us to invest in. If it were to open up, that would be a very interesting market.”

When asked about prospects for investing in Indian solar, the Susgen CEO – who formerly held the same role at PP Asset Management – cited a “race to the bottom,” in terms of ever-lower solar electricity price tariffs agreed by developers under an aggressive reverse-auction tendering process.

Indian solar price bids

“There has been a lot of speculation about whether some of the bids can be delivered,” added Jones. “India is a market we looked at, it will be probably the second biggest market, behind China, globally, in the future – it’s probably quite close now. We steered away from India because we felt we just didn’t have the right local partners, back in 2016, so we steered towards the U.S.”

The same hurdle was obvious in China, Jones adding: “Historically, it’s been very difficult for people to access that market unless they have strong local partners but there are signs that territory is starting to open up.”

When it comes to the U.S., where PP Asset Management has already worked with Virginia-based solar developer Urban Grid, the Susgen CEO diplomatically avoided mentioning the current White House incumbent. “We were very excited about the extension of the ITC [investment tax credit for solar],” said Jones. “That gave the industry, as a whole, five years of runway to develop and deploy projects. The slight downside was that, at about the time of the ITC extension, we had the issue of import tariffs on solar panels but the net position of the two policies wasn’t too severe.

State-level

“We see, at state level, a whole range of incentives as well. The U.S. needs to be analyzed including the states, which bring forward local subsidies, you need to understand the states and the RTOs [regional transmission organizations]. There is promise in Virginia, Maryland and where the irradiation is higher in some of the Southern states, they are opening up and beginning to be go-to business states.”

The recent decision of the U.K. government to propose the return of solar to a national Contracts for Difference procurement regime was described as “very, very encouraging” by Jones, who said: “We view the U.K., from the policy perspective, as being a very strong opportunity.”

Although the Susgen chief acknowledged the Covid-19 crisis would have an impact on renewables investment worldwide, he said demand for shovel-ready and operational sites still outstripped the number of such projects available to invest in.

Covid-19

Read pv magazine’s coverage of Covid-19; and tell us how it is affecting your solar and energy storage operations. Email editors@pv-magazine.com to share your experiences.

Rather, Susgen is targeting early-stage development opportunities and, although Jones was coy about the cash pile at the company’s disposal, he said: “We’re looking for developers with significant pipelines, the projects we invest in tend to be the largest in their territories, ie 50 MW in the U.K. and as big as 100 MW, and even much larger in the U.S. We are not constrained in that respect.”

The threat from gas

As far as the million-dollar question about the attractiveness of renewables versus fossil fuels was concerned, Jones struck an optimistic tone and referred to the first coal-free month in the U.K. since the Industrial Revolution, which was confirmed on May 11, as well as plunging oil and gas prices during Covid-19-driven industrial shutdowns.

“Investment in oil and gas exploration is going to become more difficult,” said the Susgen chief executive, “that means it is going to get more expensive. The relative attractiveness of renewable energy as investment projects is increasing in relation to oil and gas projects. We believe clean energy is on a par in the power sector with coal and gas and will begin to take share away from the conventional oil and gas industry in time.

“The biggest threat to renewable energy isn’t coal, it’s gas. The question is, how is that threat managed? We’re really positive about the net-zero commitment [in the U.K.] Achieving that will require full decarbonization of the energy sector, including gas. We’re going to have to see gas plants come offline.”

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